Nobody likes wasting money, especially on legal fees. Clients don’t like it. And courts don’t like it. As Judge Shannon admonished in a recent opinion:
The Court has previously expressed and now reiterates its profound concerns with respect to the dissipation of monies otherwise available for distribution to stakeholders being burned up in litigation of dubious merit and questionable collectability.
The best outcome for everyone, of course, is to avoid pursuing questionable litigation in the first place.
My colleague, John Bird, has written two articles illustrating some of the challenges and considerations that lawyers and clients should take into account when pursuing fraud claims.
Simply put, the Delaware Bankruptcy Court, like other courts across the country, takes a hard look at fraud allegations and requires them to comply with elevated pleading standards under the Federal Rules of Civil Procedure.
To avoid spending money litigating claims that may be dismissed, it is important to take a hard, objective look at the fraud allegations in your complaint to make sure that they are based on particular, specific factual allegations (e.g., the who, what, when, where and how of the fraud, including the time, place, and content of alleged misrepresentations) and not just conclusory statements. For example:
Very Bad: The defendant induced plaintiffs to invest in his business.
Bad: Throughout 2007, the defendant strongly encouraged Larry, Curley and Moe to continue investing by making statements such as “stay with the business.”
Better: On July 4, 2007, Larry, Curley and Moe received a letter signed by defendant and delivered to their offices in Miami, Florida soliciting a $1 million investment in defendant’s spray-on hair business and stating that the business had been valued at $10 billion by New York Investment Bank, LLP.
This requires that you conduct a pre-complaint investigation in sufficient depth to make sure that your allegations of fraud are supported by facts rather than being merely defamatory and extortionate. (To make sure your analysis is completely objective, it may be a good idea to have a fresh set of eyes review the complaint before it is finalized.)
Without the necessary preparation, you may just find yourself throwing good money after bad.
Mette H. Kurth